The division bench of the Delhi High Court in M/S Atv Projects (India) Ltd vs. Union Of India & Ors upheld the constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.
The Petitioner was a leading turnkey projects executing company, manufacturing a full range of industrial equipment for sugar and other industries. It ran a highly profitable business till 1994-95, when it suffered severe losses due to various reasons. The petitioner filed a reference with the Board for Industrial & Financial Reconstruction (BIFR) in 1998 and was declared a ‘sick company’ on 21st April, 1999.
With effect from 1st December, 2017, i.e., one day later, the Repeal Act was enforced, vide Notification dated 25th November, 2016. Due to the said notification, proceedings before the BIFR stood abated and the petitioner could only approach the National Company Law Tribunal (NCLT) within a period of 180 days. The Repeal Act, 2003 had enacted Sections 4(b) and 5(1)(d). Though the Act was enacted, it was not notified till 25th November, 2016. Thereafter, with the incorporation of Section 4(b) as part of the Eighth Schedule of the Code and notification of the same with effect from 1st November 2016, the amended Section 4(b) of the Repeal Act came into operation with effect from 1st December 2016.
The Petitioner then filed a writ petition before the High Court challenging the constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 on the ground that the said section violated Article 14 & Article 19 of the Constitution of India.
The petitioner argued that the abatement of proceedings, as the scheme was not sanctioned, would result in severe injustice to the petitioner. According to the petitioner, the right to appeal is a vested right and would be governed by the law prevalent on the date when the right accrued, in this case i.e., on 30th November, 2016. The petitioner further stated that the classification between cases where schemes were pending and schemes that were sanctioned is not based on any intelligible differentia and did not satisfy the object sought to be achieved.
In order to determine this case, the bench comprising of Justice Sanjiv Khanna and Justice Prathiba .M Singh placed reliance on the findings in Ashapura Minechem Ltd. v. Union of India and Ors W.P.(C) No.9674/2017.
In Ashapura (supra), the High Court held “that the differentiation between sick companies where draft schemes have been approved, which are treated as `deemed approved resolution plans’ under the Code, and such cases where draft schemes have not been approved, and are thus fully covered by the Code, does not fall foul of Article 14. This Court has further held that sick companies whose schemes have been sanctioned form a separate and distinct class and the differentiation made is a valid, germane and realistic classification.”
The Court also used the cases cited by the Petitioner to reason its decision. In Hoosein Kasam Dada (India) Ltd. v. State of M.P., 1953 SCR 987 The Supreme Court holds as under:-
“Such a vested right cannot be taken away except by express enactment or necessary intendment. An intention to interfere with or to impair or imperil such a vested right cannot be presumed unless such intention be clearly manifested by express words or necessary implication.”
Also in Garikapati Veeraya v. N. Subbiah Choudhry, 1957 SCR 488, A Constitution Bench of the Supreme Court held that vested right of appeal can be taken away only by a subsequent enactment, if it so provides expressly or by necessary intendment and not otherwise.”
The High Court also observed “In this case, we are not concerned with the right or pendency of an appeal, but repeal of an enactment and its substitution by another, with the express stipulation that proceedings under the repealed enactment would abate. The Repeal Act and Code expressly and specifically state that the proceedings under SICA would not survive and would abate. This is the explicit provision incorporated by means of the amendment to Section 4(b). The legislature clearly provides remedy to all persons/classes of persons whose proceedings were pending and it is up to them to avail the same in accordance with the prevalent law. In the instant case, a perusal of the Code and the Repeal Act clearly shows that there is one broad classification which has been made by the Legislature, namely cases in which schemes are sanctioned and those cases in which the schemes or proceedings are still pending. In the latter class of cases, the legislature provides the remedy of approaching the NCLT within period of 180 days from the date when the Code comes into effect. Such proceedings would then be dealt with “in accordance with the provisions of Insolvency and Bankruptcy Act, 2016.”
Dismissing the Writ Petition, the High Court upheld the Constitutional Validity of Section 4(b) of the the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.
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